Will Higher Development Expenses Derail USAR's Growth Trajectory?

USA Rare Earth, Inc. USAR is progressing its rare earth mining and magnet manufacturing facilities in the United States, including its Round Top project in Texas and Oklahoma. However, USAR remains in the pre-revenue stage as its assets are yet to reach commercial-scale production, resulting in continued operating losses.

The company is incurring rising development costs as it progresses through the project phase. In the fourth quarter of 2025, selling, general and administrative expenses surged to $18.5 million from $4.5 million a year ago, driven by higher legal and consulting fees, workforce expansion, recruitment costs and increased overheads.

Research and development expenses also climbed to $7.2 million from $1.4 million in the same quarter last year, primarily due to higher employee-related costs. As a result, the company reported a loss of 19 cents per share for the quarter.

Despite these cost pressures, USAR continues to move toward commercializing its rare earth projects. The company has recently marked a significant milestone with the commissioning of Phase 1a of its commercial magnet production line at its Stillwater facility in Oklahoma. Also, the Round Top project is expected to begin commercial production in late 2028, two years ahead of its earlier timeline. Until revenues start flowing, elevated development spending and operating expenses are likely to weigh on the company’s performance in the quarters ahead.

USAR’s Peer Performance

Among its major peers, NioCorp Developments Ltd. NB is facing cost pressure. In the second quarter of fiscal 2026, NioCorp’s total operating expenses increased significantly on a year-over-year basis due to expenses incurred for the advancement of the Elk Creek Project. Rising costs and expenses, if not controlled, might affect NioCorp Developments’ margin performance.

Its another peer, Rio Tinto Group RIO, is benefiting from rising copper production, driven by strong operational performance across its assets. However, weather-related disruptions earlier in 2025 affected Rio Tinto’s iron ore volumes. Planned maintenance activities at some copper mining projects temporarily reduced Rio Tinto’s output in 2025, while cost pressures from inflation and higher sustaining capital spending impacted margins.

USAR’s Price Performance, Valuation & Estimates

Shares of USAR have gained 97.7% in the past year compared with the industry’s growth of 65.5%.Zacks Investment Research

Image Source: Zacks Investment Research

From a valuation standpoint, USAR is trading at a forward price-to-earnings ratio of negative 28.22X against the industry’s average of 14.88X. USA Rare Earth has a Value Score of F.

Story Continues

Zacks Investment Research

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for USAR’s 2026 earnings has decreased over the past 60 days.Zacks Investment Research

Image Source: Zacks Investment Research

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Rio Tinto PLC (RIO) : Free Stock Analysis Report

NioCorp Developments Ltd. (NB) : Free Stock Analysis Report

USA Rare Earth Inc. (USAR) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

View Comments